Share this

America spends a greater share of its GDP on health care than any other nation, and costs have been stubbornly growing at a rate nearly double the CPI for decades. It is as unsustainable as it has been relentless. The reason is obvious: we want more care, and we always will. Now we’re poised to give that insatiable appetite full access to the federal tax base and then pretend to try to restrain it with a bevy of heavy-handed federal levers. This can’t possibly be a good idea.

Here’s a better one:

1. Eliminate Employer Subsidies and Use The Money Better: Eliminate the deductibility of employer health insurance premiums, a costly tax subsidy that has led to over consumption by many and a desensitization of health care consumers to the very competition needed to restrain costs. That tax money can be used more wisely and to a greater social end by arming the care consumers themselves.

2. Freedom Via Refundable Tax Credit: Use the resulting increase in federal proceeds, and perhaps part of the proceeds of a broad-based carbon tax as well, to give every American household or individual a substantial tax credit sufficient to purchase adequate coverage. There would be no “means-testing,” since a progressive tax code is supposed to take care of this already. It would be refundable because, even if you don’t pay enough taxes to fully benefit from the credit, you receive enough money anyway.

3. Non-Discrimination: No insurer would be permitted to deny coverage based on age or preexisting conditions.

4. The End of Medicaid: States would terminate their Medicaid programs since all poor families would now be eligible for the federal tax credit. However, the state’s previous spending on Medicaid could be used to offer credits similar to the federal program for peripheral services to help poor families cover services not required by the state’s regulation or to help cover other out-of-pocket costs not covered by the plan.

5. State and Federal Regulatory Roles: Regulation of insurers, enforcement and minimum benefits requirements, if any, would be left to the states. There may need to be federal guidelines to ensure that easy portability between states is achieved and that the system works as smoothly and with the level of consumer choice intended. Among these provisions might be guidelines for dissemination of health care provider pricing and service information, electronic record keeping, etc.

Under this approach, consumers can choose the plan and provider that suits them best: younger persons might choose a high deductible, “wellness” oriented plan, while older households might choose one which emphasizes drug coverage and in-home care. A third group might simply direct the entire tax credit into a health savings account to be accessed as needed. Individuals can change jobs, move to another state and change their life circumstances all without having to worry about their employer’s plan.

Echoes of a Forgotten Consensus

Both parties and almost every employer and consumer recognize that the system is broken. During the presidential campaign John McCain even proposed a refundable tax credit of sorts, but did a miserable job of explaining his specific plan. Unfortunately, Obama’s and Biden’s “my way or the highway” attacks on it were a low point in their campaign. Even liberal pundits chided the Democrats for mischaracterizing an approach lauded by economists and supported at times by a number of prominent Democrats, including Bill Clinton. Of special concern was the fact that the attacks indicated where Obama really intended to take health care: away from portability, consumer choice and competitive cost control and toward a heavy-handed governmental mandate and substitution (e.g., expanding Medicare) that went in the opposite direction.

Setting aside for the moment the inevitability of Social Security cuts and other components of impending economic doom, cost escalation and the flight of physicians from government-driven plans like Medicare and Medicaid simply cannot continue. So what will he and the Democratic Congress do, determined as they are to dismiss any state-based and market-based alternative proposal as “uncooperative?” Well, what we do know about their plans is not encouraging. They would:

1. Require all employers to provide or individuals to purchase insurance.
2. Reduce provider reimbursements.
3. Subsidize anyone with an income equal to or less than members of Congress.
4. Create a Medicare-like government plan that would compete with insurers and, if all goes according to plan, gradually put them out of business.

Nancy Pelosi, Henry Waxman and perhaps Harry Reid to a lesser extent, probably cannot conceive of why America should ever want or need private health insurers, having repeatedly lauded Medicare and veterans care for working so much better (a conviction at best based on false accounting and very questionable data and logic). Profit is bad enough by itself, they might argue, but it certainly has no place in health care (and education, and maybe banking, automobile manufacturing, etc.). Obama probably doesn’t go that far, but we only have to remember who actually crafted the stimulus bill to know how little those reservations will be worth come time for legislation.

How in the world did we ever come to this?

Just 18 months ago a bipartisan congressional coalition consisting of Democrat Russ Feingold and Republican Lindsey Graham, authors of the State-Based Health Care Reform Act, Democrat Jeff Bingaman and Republican George Voinovich, authors of the Health Partnership Act, and Democratic Congresswoman Tammy Baldwin and Republican Tom Price, authors of the Partnership Through Creative Federalism Act, announced their intent to press for a flexible, federalist, bi-partisan, consumer-driven approach to providing universal health care and much-needed cost control. It drew broad-based support that included the Heritage Foundation and the Brookings Institution, both ably represented in The Arena by distinguished contributors.

"Many of us yearn for concerted national action to extend health insurance to all Americans. Alas, consensus on how to do it remains elusive. Right now, however, states are abloom with legislative proposals to cover the uninsured” wrote Brookings senior fellow Henry Aaron at the time. Apparently, in light of Democrats just-announced intent to include a “reconciliation instruction” in the 2010 budget resolution, which allows them to pass health care legislation without a single Republican or even Blue Dog Democrat vote, they’ve decided to just chuck the whole consensus thing, along with any thought of relying on states, Republicans and bipartisanship. But as it will be with energy, greenhouse gas and interrogations, going it alone simply because they have a (temporary) hammerlock on the federal government is a mistake that will come back to haunt them. “Going commando” on such complex and far-reaching matters always does.

In all of his public remarks on health care, Obama has rarely, if at all, uttered the words “state”, “portable”, “competitive”, “consumer” or “market-based.” Once you limit your vocabulary like that, there are only three basic ways to reduce the nation’s health care costs to something it might be able to afford:

We’ve already tried the first one, and unfortunately Obama’s preferred approach seems to rely almost entirely on doing even more it while refusing to admit that it is on an unavoidable path to the second and third. Because of the squeeze we are already fast approaching a time when nearly half of registered physicians refuse to participate in Medicare or Medicaid, or both. And while there may be margins to be cribbed from drug manufacturers, that margin – which pays for ours and the rest of the world’s new medicine research – is in the single digits, not nearly what most Americans think it is. The Congressional Research Service concluded that savings from re-importation of US manufactured medicines would save less than 1 percent of drug spending.

Obama is at least correct when he says we need to focus on health as much as care. Yes, we can save a few bucks with electronic recordkeeping and putting labels on fatty foods. While we’re at it let’s hand out free treadmills, though anyone making over $150,000 will have to buy their own. And then there’s my favorite Obamanism: waste, fraud and abuse. If it weren’t for those crooked doctors, we’d be doing just dandy. But add it all together and we’ve probably accounted for only one or two years’ worth of medical inflation.

The sky really is falling on American health care. We Republicans can and need to do much better than what Pelosi, Waxman and Reid have placed on the table. Let’s start with freedom, empowerment, competition, information and choice. For everyone.

More POLITICO Arena

About the Arena

The Arena is a cross-party, cross-discipline forum for intelligent and lively conversation about political and policy issues. Contributors have been selected by POLITICO staff and editors. David Mark, Arena's moderator, is a Senior Editor at POLITICO. Each morning, POLITICO sends a question based on that day's news to all contributors.